The observatory issued a Number 8 storm signal Friday -- the third-highest warning level.
The usually frenetic streets of Hong Kong were deserted on Friday as the city was battered by Typhoon Haima after the storm left a trail of deaths and damage in the Philippines.
More than 700 flights in and out of Hong Kong were cancelled or delayed, roads were clear of cars and pavements empty, with schools and offices shut as the storm passed east of the city and hit southern mainland China. Trading on the city's stock exchange was also cancelled for the day.
As Haima swept past Hong Kong in the early afternoon, trees were felled by winds, and waves crashed over coastal roads.
At 2:00 pm (0600 GMT) Haima's centre was 110 kilometres (75 miles) to the northeast of Hong Kong as the storm made landfall near Shanwei in China's southern Guangdong province, according to the Hong Kong Observatory.
"As the western part of Haima's eye wall is rather close to Hong Kong, gales will affect the territory for some time," the observatory said.
It warned the public to stay away from the shoreline due to rough seas, but many residents turned storm watchers.
In the western neighbourhood of Kennedy Town people laughed and joked as they were soaked by waves. "I'm from Nepal and I used to live by a lake. I like playing with the water. I'm not afraid of the water," said one resident who gave his name as Raju.
Others jogged, fished and practised tai chi as the storm rolled in. Rain poured down into the early afternoon and wind gusted up to 105 kilometres per hour.
Ferry services including the city's famous cross-harbour Star Ferry were cancelled.
Hong Kong's flagship carrier Cathay Pacific said it expected "significant disruptions" to its flights between 11:00 am and 10:00 pm (0300 GMT to 1400 GMT) Friday.
Underground metro train services were also reduced and all buses cancelled.
The government has set up more than 20 shelters and the city is expected to remain in lockdown for most of Friday until the storm passes. It comes after a week of downpours in Hong Kong that brought severe flooding to some parts of the city. Traffic was caught in torrents of water flowing down main roads on Wednesday as the observatory issued its severest "black rainstorm" warning.
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